Three Favorite Long Term Investments on Sale
James is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It seems like a very simple strategy: buy great companies at rock-bottom prices and let the exceptional management continue on their path to greatness as you hold onto them "forever." It's served Warren Buffett well over his decades of value investing. But it's not always so easy to pick out these gems. However, after some diligent research, I would like to present a few for your consideration in no particular order.
Wal-Mart (NYSE: WMT) is the worlds largest retailer, and all signs point to it keeping that title for years to come. Costs to enter this space are high and profit margins are slim. Wal-Mart has gained its competitive advantage one leg up at a time over decades of solid planning and management.
Wal-Mart is currently trading at $68.75 (Figure 1), which is about 11% below its 52 week high of $77.60. This recent dip may present a compelling buying opportunity for a long term investment.
Yielding an acceptable 2.30% with only a 32% payout ratio, we can expect the 5 year average dividend growth rate of 12.56% to continue unabated.
With most recent quarter (MRQ) numbers replicating that of the company's 5 year average, it's easy to see that the Wal-Mart growth story is right on track. With a decent yield, good growth, and exceptional management, Wal-Mart is indeed a solid long term buy.
Walt Disney (NYSE: DIS) is a personal favorite of mine. The brand, its products, and the experience are unique. The staying power lasts from one generation to the next. With the recent acquisitions of Lucasfilms (2012), Marvel (2009), and Pixar (2006), it's very obvious that management is looking well into the future-in terms of both development as well as generating sustainable cash flow.
Disney is currently trading at $48.67 (Figure 2,) which is about 10% below its 52 week high of $53.40. Being that this is the largest pullback we've seen all year, this is often when long term investors find their best buying opportunities.
Disney currently pays a 1.5% yield. With a five year average dividend increase of 11.16% and a payout ratio of only 19%, we can expect those dividends to continue increasing over time.
Disney's footprint is growing. It's becoming a media giant the likes of which the world has never seen before. From ESPN to the Disney theme parks, it offers content and experiences that are nearly impossible to replicate. Management is smart and dedicated to future growth and sustainable profits. Debt is low and profit margins are high. Basically, it doesn't get any easier than this when it comes to recommending a company for a long term buy and hold.
Apple (NASDAQ: AAPL) has recently received a slew of downgrades. The negative commentary surrounding Apple has led to the largest percentage decline we've seen in years. The negative commentary includes the law of large numbers hurting future growth, competition making headway, or since Steve Jobs had gone the vision of the company has been lost.
However, I take a different view on Apple. If we look at a 3-year chart (Figure 3), we can see that the recent pullback should be a welcome correction to long term investors.
Long term charts don't get much easier than this one to read. The green arrow represents solid long term support. Throughout all of 2012 Apple became too overvalued according to this chart, and this correction has taken it down to historically acceptable levels for a long term entry opportunity. That is why for the first time in over a year I'm recommending Apple for a long term buy and hold.
Apple is trading at exactly $503.50 as I currently write this article, which is about 28% below its 52 week high of $705.07. With a P/E of 11.40 and a forward P/E of 8.78, this company is a steal at current prices. Some highlights of Apple's balance sheet include practically zero debt and tens of billions in cash. A PEG ratio of 0.50 points points to a solid future.
The current dividend of 2.10% can be expected to grow over the coming years since it comes at the expense of a meager 6% payout ratio. That means the expected yield is safe, while leaving plenty of cash on hand for future R&D.
Though some analysts have slapped a sell rating on this stock, it doesn't appear to have been met with the proper earnings estimate downgrades. In fact, over the last 30 days it has received an equal number of earnings upgrades as well as downgrades.
The Apple growth story is not over, since China and other populations are opening their doors. It's a rare to find a fast growing company trading in line with value investing fundamentals. However, this recent pullback has given us that very scenario.
Lulupoopsalot has positions in Apple and Disney. The Motley Fool owns shares of Apple and Walt Disney. Motley Fool newsletter services recommend Apple and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!